NSE, Dangote and great expectations

With the report that the NSE All Share Index returned 35.45 percent in 2012, trends are looking up in the stock market and it is not unconnected with the activities of foreign portfolio investors and the introduction of market making. In an article, “Essential strategies for capital market growth”, published in August 2011, this writer said, among other things: “Worldwide market makers play a very important role in both the equity and bond markets. They stabilise the market by standing ready to intervene at moments of scarcity or excess supply of securities. It is naïve, unrealistic and detrimental to investors to operate an automated stock market without the active participation of market makers.” The coming on board of market makers is therefore a welcome development. There are other such essential strategies that can enhance growth in the capital market.

Currently, the Nigerian Stock Exchange (NSE) is witnessing a drought of Initial Public Offerings (IPOs) as a hangover effect of the 2008 market meltdown and partly due to NSE’s marketing strategy which needs to be more targeted and strengthened in both creativity and intensity. The institution needs to attract further listings because virtually all the companies listed presently on the exchange came on board by government fiat, namely, indigenisation decrees, privatisation and banking consolidation, otherwise the number of listed companies would have fallen short of what presently obtains. The NSE should intensify marketing and business development to transform into a target-driven organisation in attracting listings.

With the billionaire business magnate, Aliko Dangote, as the president in council of the NSE, market watchers are optimistic that his tenure will witness the listing of a good number of high profile companies and medium scale businesses with growth potential. Dangote is super rich, powerful, very influential and a role model who appreciates the benefits of businesses listing on the exchange, having listed a multiple of his own companies almost in one fell swoop.

As the president in council and an outstanding billionaire business mogul with clout, who operates in the centre of the centre, it is expected that he will be a strong advocate of the gospel of listing and also spearhead and intensify the lobby and moral persuasion of GSM operators to list their shares on the exchange sooner than later both as a patriotic act, and to also recompense Nigerians for their brand loyalty all these years, and to allow them share in their stupendous wealth. It is expected that the MTN brand will be the first to list for obvious reasons. It has enjoyed exceptional brand loyalty since inception even when it operated a somehow strict and inflexible billing regime until Glo stepped into the arena with the per second billing system which brought a breath of fresh air, as it were, in a demonstration of the beauty of competition.

The listing of GSM operators will create big waves in the capital market and return public attention and interest to the market. It has the potential to return investor confidence in the market overnight as investors will most likely scramble for their shares both for pecuniary gains and for sentimental attachments to the brands. Their listing will deepen the market. Initial Public Offerings generate attention and frenzy in the stock market and serve as public relations and marketing platforms for the market generally and the NSE in particular because of the sustained advertisements in the mass media.

The power of information and communication in driving growth in the stock market is immense. It serves as a lubricant in a changing and dynamic market, though the NSE seems not to fully appreciate the power of effective communication, which explains why it seems not to have an obvious communication strategy.

Information is one of the tripods and major determinant of stock market efficiency, the other two being transparency and integrity. Besides raw technical data which experts process for making investment decisions, educational information which drives the socio-psychological dynamics of the market also needs to be structured and delivered at regular intervals with a maximum impact. The NSE needs to intensify communication in diverse ways.

Investor education should be top priority because the high level of stock market illiteracy was also a major contributing factor why most investors suffered heavy losses in 2008. They blindly waded into the stock market without the basic understanding of the up and down operating nature of the stock market. The NSE should also devise to educate the investing public on the ABC of the newly introduced Exchange Traded Funds (ETF), and also the Real Estate Investment Trusts (REITS), which offer even better returns than equities. But how many investors know that? In the 1980s up to 2000, the NSE had a pamphlet on frequently asked questions on the stock market which the investing public and scholars found useful.

A regime of the disinformation, misinformation, information mismanagement, under-communication, ineffective communication and illiteracy takes away from the bottom line. Communication-opaque institutions are fertile grounds for rumours, speculations and hearsay, all of which are inimical to stock market growth. They have the potential to trigger crisis. Crisis could break out at any time, just as it could be about anything as events in the past have shown. Often corporate bodies take issues of communication for granted and as such budget little or nothing for it because it is considered an intangible. They are lackadaisical about it until they get caught in the middle of a crisis and they begin to run helter-skelter. But the best way to manage crisis is to nip it in the bud through effective communication.

Because of the dynamic nature of the stock market, the NSE should think of constituting a standing crisis committee and also retain the services of a third party advocate versed both in capital market concepts and operations. Third party advocates.

When the development that led to the 2008 stock market downturn started, it was rather ponderous, but suddenly it grew like a rapid fire and hit the threshold in no time to burst the bubble. Thereafter, speculations were rife as to the root cause, even as some analysts said it was a “mere glitch” in the trading engine.

In an article, “Hot money, margin trading and stock market dynamics”, this writer gave insight into the effect of hot money on stock markets, and the history of stock market crashes around the world; and later, in a more comprehensive and documented report, “A Strategic Report on the Stock Market Downturn vis-à-vis Banking Consolidation”, identified the absence of a policy by CBN on margin loan and the apex bank’s mismanagement of the information on its belated decision to ban margin loan as what triggered the market, a fact Kingsley Moghalu, the deputy governor, Financial System Regulation, CBN, had to later on admit in 2012 at the public hearing of on the “near collapse of the capital market”. The said report was sent by registered courier to the governor, CBN, Sanusi Lamido Sanusi, after which the apex bank developed guidelines on margin loan and placed a ceiling on it as was recommended in the report. The same report was later on sent to the DG, SEC, Arunmah Oteh, also by registered courier, and was given personally to NSE CEO, Oscar Onyema. Though none of them acknowledged receipt, it is believed that the report was useful in providing insights into the problem and the roles played by CBN, banks and stockbrokers, respectively, and how the NSE could not readily realise that the pyramidal structure of the stock market was being overturned through excessive speculative trading, and the way forward.

Now that trends are looking up in the stock market, it is also expected that the IPOs will not be long in coming to resuscitate the moribund primary market for a full effect.

 

ARIZE NWOBU